Organizations and Coordination in a Diverse Population

Abstract

We study how organizations can exist to facilitate coordination in a diverse population by mitigating strategic uncertainty. Members of an organization are obliged to take collective actions, which mitigates strategic uncertainty. But some actions may be detrimental to some members, thus jeopardizing the organization's sustainability. This tradeoff caps organization size and limits the resulting welfare improvement. Organizations can exist only if coordination motives dominate the diversity of the population, up to a size limit. Our framework can be applied to examine the impact of immigration or polarization on the inclusiveness of the social order.